Government proposes reduction of GST on EVs to 5%

Buying electric vehicles will be more affordable than before as the Government of India has proposed to reduce GST on them. India’s Finance Minister, Nirmala Sitharaman, announced in the Union Budget FY2020 a proposal has been made to the GST council to lower the GST on EVs from 12% to 5%.

The reduced GST rate would result in even more affordable prices for electric vehicles.

Apart from the lower GST rate, the government has announced special incentives. The Finance Minister also announced additional income tax deduction of INR 1.5 lakh rupees on interest paid on electric vehicle loans. Sitharaman said in her speech of Union Budget that the electric vehicle buyers will receive overall benefits worth INR 2.5 lakh. With the latest announcements, the government has made its intentions of mass electrification clear.

Regular readers would know that the Government of India plans mass electrification of two-wheelers by 2025. Under the aggressive plans of mass electrifications, the government plans to replace all two-wheelers under 150 cc of displacement with electric vehicles.

Previously, the government had announced the FAME-II scheme with a much bigger allocation (INR 10,000-crore) compared to FAME-I (INR 895 crore). Ather Energy passed on the benefits from the FAME-II scheme to the customers by reducing the prices of their vehicles.

Previously, manufacturers in the Indian market had expressed their concerns about the timeline for mass electrification. Companies like Bajaj Auto and TVS Motor Company have called the deadline unrealistic and impractical, raising concerns about the risk of derailing auto-manufacturing in India.

The government has also announced increased cess of INR 1 per litre on petrol and diesel.